IATA Aviation Day Central Asia & Caucasus, Astana, Kazakhstan

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It is a pleasure to open the first IATA Aviation Day in Kazakhstan. Aviation Days are a time to celebrate aviation’s achievements, to evaluate the impact of the industry on the economy and to align industry, government and other stakeholders in a common understanding of how to move forward.

I am grateful for the support of Air Astana and its CEO, Peter Foster. I have known Peter for many years. You might say that we come from the same training school—Cathay Pacific. We certainly share the same passion for aviation. And neither of us is shy in reminding people of the important and essential role that aviation connectivity plays in our world. So it is great to see that so many key stakeholders have taken time out of their busy schedules to spend this time focusing on what I firmly believe is a vital industry and facilitator of economic growth and development.

I would also like to thank Mr Askar K. Zhumagaliev, Minister of Transport and Communications of Kazakhstan for the support of his Ministry in making today’s gathering possible.

Air Connectivity

Worldwide, aviation supports $2.2 trillion of economic activity and 57 million jobs. It is a young industry. Soon we will celebrate the 100th anniversary of commercial flight. In that short time, aviation has had a profound impact on modern life by connecting the globe as never before. Nearly three billion people are expected to travel this year. And over 47 million tonnes of cargo will find its way to markets by air.

Running an airline is a challenging business. This year we expect airlines to generate a global profit of $3 billion on revenues that will exceed $630 billion. That’s a pitiful 0.5% profit margin, in line with the historic profit margin over the last four decades which is less than 1%.

Aviation is a global business. But the financial state of the industry is by no means uniform across all markets. For example, European airlines, suffering the impacts of a sovereign debt crisis, high taxes and inefficient infrastructure, are expected to post losses exceeding $1 billion. On the other hand, Chinese airlines, despite a slight slowdown in economic growth, are still booming.

Between these two markets lies Central Asia. This is my first visit to this part of the world. From the moment that I landed, I could feel the infectious energy of a rapidly developing economy. It reminds me of the optimism that I experienced when living and working in Hong Kong as it developed alongside the economy of China. And it is a welcome relief from the economic gloom that is hanging over Europe.

Connectivity has always been a pillar of the economic developments in Central Asia—particularly Kazakhstan. Historically it was at the center of the ancient ‘Silk Road’ linking East and West. Technology has changed as have the goods being traded. But geography is constant. Kazakhstan sits between business opportunities in Russia, Southeast Asia, the Middle East, China and Europe. A modern day “Silk Road in the Sky” is developing with Kazakhstan playing a key role in connecting these economies. And you would expect no less from a country that proudly displays the Eagle on its flag.

Recent growth numbers bear this out. Demand for air travel in Kazakhstan grew by 22% in 2011 (compared to 2010) while cargo grew by 23%. Almaty International Airport has sustained an average traffic growth of 19% for the past five years. Astana International Airport, with the completion of the new passenger building in 2007, has been growing at an even greater pace–23% in 2011. Air Astana has been consistently profitable and is a great model for how an airline in a developing nation can drive air connectivity to generate economic growth and employment.

The development of air connectivity has been a key contributor to Kazakhstan’s phenomenal economic success. Since the break-up of the Soviet Union, GDP per capita has more than doubled to $11,000 per year while according to the World Bank the incidence of poverty has been reduced from 46.5% to 6.5%. Of course, much of the development has been associated with extraction activities—oil and minerals. Over 70% of foreign direct investment is concentrated in natural resource related activities.

As the government seeks to diversify the economy with a focus on tourism, high-technology and finance, air transport will play an even bigger role. Kazakhstan is clearly one of the great emerging aviation success stories of our time. But, turning potential into reality does not come automatically.

I understand that Kazakhstan is positioning itself as ‘the Singapore of the Steppes.’ Air connectivity played an important role in developing the Singapore economy. Measured in terms of GDP per capita, Singapore ranks among the top countries in the world. So it is an inspirational model to follow. And if you look to the core of Singapore’s successful approach to aviation, you will find alignment among the key stakeholders in a strong commitment to global standards on safety and world-class infrastructure.

I hope that this Aviation Day and my remarks will make a valuable contribution towards building a similar consensus and focus here in Kazakhstan…and throughout the region.

Safety

Everything starts with safety. The sad news of yesterday’s crash in Kamchatka is a reminder that we must always be vigilant. Nevertheless, air remains the safest form of transport. 2011 was a record year for aviation safety. Globally, the industry had one accident for every 2.7 million flights on Western-built jet aircraft. In the Commonwealth of Independent States (CIS), there was one accident for every 940,000 flights—three times worse than the global average. If we look at all aircraft types, the region’s performance is close to four times worse than the global average.

Flying should be as safe in Kazakhstan and across Central Asia and the Caucasus as it is anywhere else in the world. In April 2009, IATA signed an agreement with the Interstate Aviation Committee to improve safety across the CIS based on promoting global standards. That initiative included many of the things that still need to be addressed today.

First let’s look at safety audits. The IATA Operational Safety Audit (IOSA) is the global standard for managing operational safety. Its 900-plus elements are largely based on the standards developed through the International Civil Aviation Organization (ICAO). This includes the requirement for both safety and security management systems.

IOSA is a condition of IATA membership. Over 370 airlines are on the IOSA registry—of all sizes and from all parts of the world, including all IATA members and over 130 non-members.

IOSA is effective in improving safety. In 2011, the accident rate of airlines on the IOSA registry was 52% better than non-IOSA airlines. This IOSA difference is evident at the regional level as well. Across the CIS, out of more than 250 airlines, 25 are on the IOSA registry. Eighteen of these, including Air Astana, are IATA members for whom IOSA is mandatory. The rest have voluntarily chosen to take part. Their safety performance in 2011 was five times better than their non-IOSA counterparts.

To improve the safety record of this region, my first recommendation is for more of the region’s carriers to join the IOSA registry. I am encouraged to see that so many of the region’s carriers not yet on the IOSA registry are here in the room. I take that as sign of interest in the program. It’s hard work. The process is vigorous. But the positive impact on safety is clearly evident. Along with encouraging individual airlines to become IOSA-compliant, I also ask the region’s governments to consider incorporating IOSA into their oversight programs. Worldwide, 11 governments have already done so explicitly—including Egypt, Brazil, Mexico and Turkey. And we are working with the Russia authorities to align national regulations with IOSA standards.

Safety on the ground is equally important. Ground handling accidents cost airlines billions of dollars every year. Moreover, high levels of incidents of ground damage affect an airline’s decision to serve particular airports. The IATA Safety Audit for Ground Operations (ISAGO) is the global standard already adopted by nearly 160 organizations. Unfortunately, no airports or ground handlers in the countries of the Caucasus or Central Asia have yet joined the ISAGO registry. I urge regulators, airports and ground handlers across the region to make ISAGO a central pillar of their ground safety programs.

Of course, safety oversight is the responsibility of governments. Through ICAO, global standards are agreed by governments. Agreeing to standards and implementing them are different. This is monitored through the ICAO Universal Safety Oversight Audit Program (USOAP). Kazakhstan has the most indicators below the global average. But Armenia has the highest level of compliance for the whole ICAO Europe region. So, effective oversight is not a “mission impossible” for countries in this region. The need to improve Kazakhstan’s compliance with global standards is the key focus of my message to the Transport and Communications Minister and the Government of Kazakhstan.

While IATA’s focus is on improving safety through transparent global standards, Europe is taking a different path. Airlines from both Kazakhstan and Kyrgyzstan are on the European list of banned operators. I should note that Air Astana is an exception. It is allowed to fly to Europe, but with major limitations.

Let me be clear: the banned list is a misguided approach. It does little if anything to improve safety. There is no transparency—no clarity on why some carriers are put on the list and no clear indication on what is required to get off the list. And some aspects of how the list is administered are absolutely absurd. For example, Air Astana’s exemption to fly to Europe is restricted to aircraft that it had when Kazakhstan was put on the European banned list. So it cannot fly its newest aircraft to Europe. How could that possibly improve safety?

But, despite all this, the banned list has been with us for six years. It is a political reality, and it is not going to be wished away. And the stigma that comes to a region with carriers on the list is very real—a detriment to the connectivity of countries here, and the business of all airlines operating in Central Asia.

For the successful growth of the air transport industry—and the economies of this region—getting off the list is important. But there is no guaranteed methodology to do so. This highlights one of its main problems—lack of transparency. A commitment to IOSA, ISAGO, and higher levels of safety oversight—in other words global standards—would do two things. First, it will improve the region’s safety performance—as it has done elsewhere. And second, such a comprehensive commitment by industry and government would make a very compelling case for Europe to change its evaluation of the region. Of course, safety is IATA’s top priority. And we stand ready to help in any way.

An early priority here in Kazakhstan is to meet all the requirements of ICAO’s USOAP. A project is getting under way to achieve this. IATA will play its full part, but it is important that the commitment, which is clearly present at senior government level, produces results throughout the aviation community in the country.

Infrastructure

Alongside safety, cost-efficient infrastructure capacity is critical to facilitating an effective operating environment and enabling future growth. Kazakhstan has long appreciated the need for infrastructure. I was surprised and impressed to learn that Almaty has had an airport since 1905! A complete re-build in 2004 was the latest step in its development. But the capacity increase lags well behind the three-fold increase in passenger numbers that has occurred since then. Plans are in the works for a new terminal capable of handling 2,500 passengers per hour that will provide some relief. But we need to think strategically and beyond that to ensure that economic opportunities are not artificially constrained by lack of infrastructure.

And Almaty and Astana are not the only cities in need of air services. Kazakhstan has a land-locked area of 2.7 million square kilometers—bigger than all of Western Europe. Its 16 million inhabitants are widely dispersed across its vast distances. But of the 20 airports that exist in the country, only 10 comply with ICAO standards, and none is noted for exceptional service levels or quality standards. In some cases the deficiencies are as basic as equipment and trained staff for firefighting, de-icing and security. In Uralsk, the runway is in such a state that commercial services are no longer possible.

The Ministry of Transport and Communications is committed to change. By 2020, it wants 15 airports to be ICAO certified. IATA is helping with the process. And we should also be looking at ways to speed the delivery of results.

Along with capacity-building, infrastructure costs are a major factor which must be addressed.

In general, airport and air navigation charges typically account for 11% of an airline’s cost structure. That would be a significant cost element for any business—more so in an industry that is only expected to make a 0.5% profit margin this year. So, naturally, when I see statistics showing that it is 18% more expensive to turn around an Airbus A320 in Almaty than at a medium-sized airport in Europe, I am concerned. The comparison for a Boeing 767 is even worse—43% higher.

The concern grows when you see that costs are increasing, instead of becoming more competitive. In the first half of this year, boarding bridge costs were increased by 80% and lounge costs doubled—to give just two examples.

ICAO has established principles for airport charges and development fees. They include full and transparent consultation, cost-benefit analysis, and service-level agreements. When followed correctly, these principles result in a proper balance between paying for facilities and new infrastructure, and allowing for businesses to enjoy profitable growth.

These are being largely ignored and that must change. I strongly urge the Ministry of Transport and Communications to consider two actions:

First, the establishment of an independent regulator for airport and air navigation fees. The mission of the regulator should be to safeguard international principles, ensure investment in capacity and quality initiatives, and enforce a transparent consultation process.

Eliminate differential or discriminatory charging wherever it exists, in line with the ICAO principle of cost-relatedness.

Conclusion

The safety and infrastructure challenges that Kazakhstan faces are significant. But with alignment around a common vision for the future contribution of aviation to Kazakhstan’s development, they are not insurmountable. They are also not unique to Kazakhstan. Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan and Azerbaijan share similar agendas for the successful development of air transport.

IATA is convinced of the potential for air transport in this region. And we are investing resources to support successful development. I am pleased to announce the establishment of an office here in Astana—the impressive modern capital of Kazakhstan. It is under the leadership of Jordan Karamalakov who is based here and carries out IATA’s mission to represent, lead and serve the airline industry in in Central Asia and the Caucasus. And he is fully supported by our European Team, headed by Raphael Schvartzman, who is also here today.

Jordan shares my passion for the aviation industry. I am sure that you do as well or you would not be here today. Aviation is a force for good in our world. Connectivity brings global markets to your doorstep, facilitates business opportunities, transports tourists to their destinations and fosters better understanding among the peoples of our planet. It is a catalyst for trade, jobs and economic growth.

For the landlocked expanse of Central Asia, at the crossroad of some of the world’s greatest markets, the potential for aviation to drive economic growth and development is almost without limit.

This Aviation Day symbolizes IATA’s commitment to working alongside all stakeholders in Central Asia and the Caucasus for the safe, efficient and sustainable development of air transport—the theme for this Aviation Day.